Fonterra overhauls milk pricing

Fonterra has announced an overhaul of its milk pricing structure, with the dairy giant claiming the new approach will help farmers make informed decisions.

The key changes include:

  • A simplified base price where multiple seasonal tables are simplified into one seasonal table for all suppliers based on a five/seven, peak/off peak split.
  • SRP (seasonal ratio payment) will be removed and reinvested into off-peak pricing to reduce risk for farmers and maintain a price signal for the value of off-peak milk
  • Growth incentive replaced and reinvested back into base price and growth will be supported outside the pricing system to make it more attractive and material for farmers in an expansion phase

The new system was developed in partnership with Bonlac Supply Company (BSC) and industry experts such as John Mulvany, UDV, and international pricing system experts.

Fonterra Australia managing director Judith Swales said the company developed the system after it heard from many farmers that a simpler milk price system would better support farm profitability and informed decision making on-farm.
“We listened to that feedback and agreed we needed to actually do something to lead the industry forward,” Swales said. “The new system is simpler, fairer, equitable, and more transparent. It will reduce the range of prices paid to farmers against the average and will help them understand the impact milk price and incentives have on their farm businesses so they can make more informed decisions on farm. I believe it will be instrumental to setting up farmers and the industry for long-term, sustainable growth,” said Swales.

The research of John Mulvany, an independent farm consultant, was instrumental in informing Fonterra Australia’s new system.

“Milk price is important for farmers, but many other areas – such as costs of production – impact a farmer’s bottom line and profitability. My research confirmed that complexity in milk pricing doesn’t support good, profitable decision making on-farm. Some farmers confuse a high cost of production with out-of-season milk, but some farmers simply produce milk at much lower costs than others,” Mulvany said.

“That’s why it’s better to have a simpler, more transparent system that lets farmers produce milk when it best suits their business and is most profitable for them.”

The change comes after Fonterra won the Woolworths $1-a-litre Select home-brand milk contract in Victoria over Lion. Fonterra’s will begin supplying Woolworths with their $1-a-litre milk in Victoria in July.